Consequences of Not Considering Reputational Risk in Startups

Businesses do not only flourish by a high capital or multiple opportunities but also by how other people in the market and their customers perceive them. Reputation is an important part of a business’s success and contributes majorly to how your company does business. People typically prefer doing business with companies with a good reputation in the market, and it is primarily accomplished by building trust among the community.

Let’s talk about business reputation and the consequences of not considering reputational risk in startups.

What is Business Reputation?

Business reputation is defined as the customer’s perception of a brand or company. In increasing competition, a company’s reputation gives benefits over others as customers trust you more and find you more reliable.

Business reputation is measured by how reliable, trustworthy, and credible the customers, shareholders, company employees, and the financial market thinks of the company. Besides the perception, it also includes how the customers talk about the brand. Considering reputational risks play a major role in thriving businesses and making them successful.

What are Reputational Risks?

Reputational risks refer to the damage that a business may face when it does not meet the expectations of the customers or stakeholders.

When not managed properly, reputational risks may cause harm to the company’s reputation and damage business. Reputation is a company’s intangible asset and must be protected at all costs. One bad public word about the company can cause irreparable loss at times. With social media getting more accessible and popular, reputational risks are also at a higher stake.

Causes of Reputational Risks

Reputational risks may arise due to several reasons that collectively contribute to reputational damage. Some of the most common causes of reputational risks in business include poor workplace conduct, failure to adapt to modern technologies, and improper quality of products or services being offered by the company.

A few other causes of reputational risks include corruption within the company, inexperienced investors, and inadequate regulation and quality control. Yet, all these risks are manageable, and you can save yourself from reputational damage.

Consequences of Not Considering Reputational Risk in Startups

Now that you know all the possible reasons that may cause reputational damage, what if you do not take care of them in time?

If you fail to consider the reputational risks in your startup, it may negatively impact the business and your business might be entirely wiped off over time. Here are some of the consequences of reputational damage.

Tarnishes Image

The first and the most significant impact is that ignoring reputational risks tarnishes your image in the market. The impact of reputational damage is huge and multiplies in today’s time when not managed timely. Your customers and stakeholders stop thinking of you as a credible and valuable brand that works hard to deliver quality products and services to the customers.

Failure to meet Business Objectives

Every business has a business plan that contains its long-term plans, including the business objectives. When you suffer reputational damage, you may not be able to achieve the goals you had been looking forward to. Eventually, your business will fail to meet the objectives and cause financial and mental stress.

Business Loss

When a startup does not consider the reputational risks in the initial days and only works on producing more quantity than quality, it is likely to face financial loss. It would not be a surprise that investors would like to work with other entrepreneurs who are putting effort into maintaining their reputation besides making money.

Loss of Market Share

When stakeholders and investors start feeling that you are not working towards a scalable business by ignoring the reputational risks, they tend to part ways with the brand, your market share decreases. and the shareholder value is reduced. To compete with competitors, you will have to lower your prices and spend more on marketing your business positively; spending more money means decreased revenue.

Bankruptcy

Yes, not considering reputational risks for a long time and failing to improve after initial reputational damage can lead to bankruptcy. Having reputational risk insurance can help with some of the losses. To keep yourself safe from facing significant business loss, always try to find ways to build a better reputation for your brand.

FAQs

What is internal Reputational Risk Mitigation?

Internal risk mitigation refers to managing reputational risks within the company without consulting a third party. It is mostly looked after by the Board of Directors, which enforces reputational risk management strategies and instills well-established corporate values in the business.

How to Manage Reputational Risks?

You can save yourself from the consequences of not considering reputational risk in startups by taking timely measures. It includes identifying and accessing the risks, devising a strategy, adapting to modern technology, keeping an eye on customer reviews, and putting controls in the right places for improved service or product quality.

What is Reputational Risk Insurance?

Reputational risk insurance helps companies protect themselves from the consequences of reputational damage. These policies cover reputational risk behaviors, social media activities leading to reputation downfall, and customer data protection.

The Bottom Line

Considering the different types of reputational risks in a business is highly important as it can save you from reputational damage. If you fail to analyze reputational risks, your business may lose its credibility among the customers, lose shareholder value and face financial loss. Always consider reputational risks to avoid financial and associated mental stress.